It's the welfare state, stupid

As London smolders (well, very small parts of it) after yet another evening of protests pundits around the globe try and put a finger on the source of discontent. In Israel it is the failure of the government to provide housing, they say. In Greece the violence, it is claimed, began with deconstructionist anarchists. Throughout the Arab world this spring, we are told, democracy is in blossom, the consequence of oppressive governments. The experts cite a medley of reasons for recent unrest, but ultimately the real cause is economic stress. If financial pain is the cause of the unrest though, the opportunists are the greater problem, for now. The trauma begins with legitimate complaints and is exploited by those who are viscerally evil. Such ruffians cannot take down a state though. But enough angry and converted citizens can, and that is the risk.

How do citizens become so unhappy?

The ongoing protests in the Middle East can be traced back to Tunisia and the tragedy of Mohamed Bouazizi, an angry street vendor who self-immolated himself after finally abandoning any hope that the state stop taxing him. Faced with the havoc of flucuating food prices, he sought state assistance. But Tunisia's (now former) government harassed him, checking his scales, verifying his license, searching for revenues. After all, the state had several million nonproductive people to support and Bouazizi having a scant but existing income; he was a sad but present target.

The complex interconnectivity of global economics did not help Bouazizi. A system which punishes consumers on one side of the planet for market anomalies on another is an unforgiving trading partner. Globalism can bring down the price of microchips, as it has in the West, but it can also increase prices, as it did with food staples in North Africa. When governments claim the ability to manipulate the market though, and fail, there is trouble. The state which promises more than it can deliver is bound to disappoint.

And there are the facts which lead to a burning London, however slight those flames might be (it is, of course, a city with a history of severe and catastrophic fires). There will be more violence in more cities and some of those cities will be in America.

Do not blame the global economy. The marketplace works. The problem is the inability of the market to provide the impossible: infinite resources and services at little or no cost. Yet this is exactly what the governments of the world have been promising since the birth of the modern social welfare state. Free healthcare, food, education, all coupled with guaranteed employment, retirement pensions, and vacation to get away from whatever productivity might remain. Financed by chimerical borrowing, the game had a pretty long run considering it is both unsustainable and overt. But if anyone cared to notice they were ignored, and now the unpayable bills are coming due.

The most prosperous, a definition sure to change, will be insulated from the unrest for awhile. Bahrain can pay off the unhappy. Tunisia was unable to. Despotic governments, already despised, will be especially vulnerable. (This is why economic unrest is so often being misdiagnosed as civil unrest- people are unhappy with their leadership, but a lack of money puts them in the streets).

Hungry or broke protesters will continue to demonstrate and it should not be a shock when it starts here.

Commentators will suggest that the violence in London is racial, or isolated to a few thugs. There are thugs involved, there always are when violence appears. And the incident that started the riots was racial. But months of forced (but necessary) Tory cuts to social welfare programs (or "programmes," if you prefer) and a weak economy is at the heart of the problem.

I have avoid discussing foreign policy here, but in an age where markets and capital circulate interconnected, outside and beyond the borders of nation states, it is impossible to discuss America's economy without viewing the world's. As Washington ponders how to restart the (never started) recovery, we need to understand the simple reality that we have less than we think we have. It is not just that the government is in debt, it is that debt is at the core of a system of governance which promises more than it can deliver. Like a delirious, debt laden shopaholic who keeps transferring bills from one credit card to another, we have to not just stop spending but lower our expectations of what we deserve.

We have no better place to look for this then the other places which, lacking the global reserve currency, have been unable to buy off their unhappy masses when prices rise (or the ones which are already on fragile ground because of inequitable rule).

There is a way out. Iceland, just months ago, was straddled with Greek like obligations. But after true austerity measures and great patience from creditors, Reykjavik's situation has improved (of course, when Iceland gets sick, the North Atlantic sneezes and forgets about it; if America gets sick, the global economy contracts yellow fever and collapses). There is a way out but it will be very, very, very difficult.

London is burning and before this economic illness passes some city (or more likely cities) will burn here too. The catalyst will be racial or an injustice of some sort, but the violence will be the same. The real cause though will be a disappointed population, let down by a government that promised too much and delivered too little, and still needs to pay the bills.